Barclays on Archstone: Lehman Should Be ‘Dancing in the Streets’

Last week, the estate of Lehman Brothers sued two of its partners, Bank of America Corp. and Barclays PLC, to block the sale of apartment-company Archstone. This week, the two banks who co-own Archstone along with Lehman are pushing back with a novel argument: Put your money where your mouth is.

Here’s the background: Lehman claims in a filing that Bank of America and Barclays were pushing to sell half of their 53% stake in Archstone – one of the country’s biggest builders and operators of apartment buildings – at a steep discount, and that the deal the banks struck with Sam Zell’s Equity Residential violated the Archstone ownership contract.

In its own court filings last night, Barclays shot back at Lehman: If you think it’s so undervalued, buy it yourself. “If plaintiffs actually believe, as they say in their securities filing, that EQR’s bid is too low by almost ‘$1 billion in value,’ then plaintiffs should be dancing in the streets,” Barclays said of Lehman. (Based on its contract with the banks, Lehman has the right to match the price and intercept the sale to Equity Residential.)

The banks’ response contested Lehman’s request to speed up the lawsuit, given that the banks are slated to seal their deal by Jan. 23.

The court fight comes as the two banks and the Lehman estate have been sparring over how to exit their investment in Archstone, which they purchased in 2007 in a mega $22 billion leveraged buyout that quickly soured with the market. With multifamily values showing a surprisingly robust recovery after falling during the downturn, the two banks are anxious to sell their stake outright, while Lehman believes it can get better value by taking the company public again.

With ownership stakes in more than 70,000 apartments in the U.S. and Germany, Archstone is the largest remaining real-estate asset in the liquidation of the entire Lehman estate. (A court recently approved Lehman’s plan to exit bankruptcy.) Filled with assets left on the books of Lehman like Archstone, the liquidation has been complex, calling for more than $1.4 billion in fees to advisors and mangers thus far. Over the next few years, the estate’s managers hope to return to creditors up to $65 billion in assets — Archstone among them.

The deal with Equity Residential put Lehman on the defensive, given that the company’s chairman, Sam Zell, has said he is maneuvering for control over the company’s entire portfolio, which would disrupt Lehman’s plans to take it public again.

The Lehman estate, which owns 47% of Archstone, alleges that the banks’ deal to sell the 26.5% stake for $1.33 billion violated a number of provisions in the Archstone ownership contract. The Lehman estate also has said it believes Archstone is worth at least $1 billion more than the value implied by the sale price.

In its court filings, Barclays criticized the Lehman estate’s logic, saying if it thinks the company is worth so much more, Lehman should be happy with the Equity Residential price given its contractual option to buy it for the “same low, low price.”

Bank of America said in its filing Tuesday that stalling the sale “risks causing defendants irreparable injury by placing at peril their agreement to sell one half of their respective interests in the Archstone Entities to Equity Residential.”

Equity Residential’s deal for the 26.5% stake values the company at about $16 billion, including debt.